The RBI directed Yes Bank that it should not grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment or otherwise enter into any compromise or agreement and transfer or dispose of any of its properties or assets.

The financial position of Yes Bank has undergone a steady decline largely due to the bank’s inability to raise capital to address potential loan losses. (File)

The Reserve Bank of India Thursday superseded the board of directors of troubled Yes Bank for a period of 30 days “owing to serious deterioration in the financial position” of the bank and capped deposit withdrawals at Rs 50,000 per depositor.

The central bank said: “This has been done to quickly restore depositors’ confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation.” The RBI appointed Prashant Kumar, former Deputy Managing Director and CFO of State Bank of India, as the administrator of the private sector bank.

The RBI directed Yes Bank that it should not grant or renew any loan or advance, make any investment, incur any liability or agree to disburse any payment or otherwise enter into any compromise or agreement and transfer or dispose of any of its properties or assets. However, it will be able to pay salaries to its over 20,000 employees, the central bank said.

The financial position of Yes Bank, the fifth largest private bank, has undergone a steady decline largely due to the bank’s inability to raise capital to address potential loan losses and resultant downgrades, triggering invocation of bond covenants by investors and withdrawal of deposits, the RBI said.

The RBI said it came to the conclusion that in the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors, it had no alternative but to apply to the Central Government for imposing a moratorium under Section 45 of the Banking Regulation Act, 1949. “Accordingly, the Central government has imposed moratorium effective from Thursday,” the RBI said.

Earlier, in a last-ditch attempt, there was a proposal suggesting that a consortium of investors led by State Bank of India is likely to pick up a significant stake in Yes Bank to provide much-needed equity support to the troubled lender and to ensure that stability in the financial system is maintained.

As part of the proposal, lenders, led by SBI, were considering subscribing to a preferential share issue to acquire a sizeable stake of around 49 per cent in Yes Bank. There were indications that Life Insurance Corporation (LIC) and some private sector banks could be part of the consortium. However, this proposal didn’t work out.

Earlier, in response to a query from stock exchanges on reports of an SBI-led consortium picking up stake, Yes Bank said: “We would like to clarify that as on date, the Bank has not received any such communication from RBI or any other the Government or Regulatory authorities or from the SBI and we are unaware of any such decision.”

Shares of Yes Bank closed higher 27 per cent at Rs 37.20 at the National Stock Exchange Thursday. A senior Finance Ministry official said it is up to the lender to decide whether it is in its commercial interest to buy stake in Yes Bank.

The RBI has already indicated a “reconstruction or amalgamation plan” saying it “assures the depositors of the bank that their interest will be fully protected and there is no need to panic.” The revival plan, the RBI suggested, may be put in place “well before the period of moratorium of 30 days ends so that the depositors are not put to hardship for a long period of time.”

SBI, in a late evening disclosure to the stock exchanges, said it discussed the Yes Bank proposal in its board meeting and that “an in-principle approval has been given by the Board to explore investment opportunity in the Bank.”

If the plan materialises, this will be the second bailout of a new private sector bank by a state-owned lender. Oriental Bank of Commerce bailed out the troubled lender Global Trust Bank in 2004, which lent heavily to individuals speculating in the stock market. Global Trust Bank’s net worth had turned negative as NPAs surged at the bank following the crash in the stock market which affected its portfolio to borrowers in the market.

Nudged by the government last year, LIC had acquired a majority stake in IDBI Bank, infusing much-needed capital alongside the government in the stressed bank. In 2010, the Reserve Bank of India approved the merger of another troubled lender Bank of Rajasthan with ICICI Bank. Bank of Rajasthan was under the RBI’s scanner for alleged violation of banking regulations, including those on corporate governance, and had ordered two major audits of the bank.

Reserve Bank of India Governor Shaktikanta Das said Wednesday that no large bank will be allowed to fail and the regulator will maintain financial stability in the system. To protect the system, the RBI has taken over bankrupt cooperative lender PMC Bank and ordered restrictions on deposit withdrawals. The regulator has also ordered resolution under the National Company Law Appellate Tribunal for the DHFL.

Yes Bank has been passing through a turbulent period ever since RBI, in August 2018, asked the then MD and chief executive and co-founder Rana Kapoor to leave by January 31, 2019, amid concerns over governance and loan practices. The bank had disclosed higher under-reported stressed assets under Kapoor’s successor Ravneet Gill.

The bank, which was struggling to raise capital since the middle of last year, had initially planned to raise over $2 billion in the current fiscal. Later, its board rejected a $1.2-billion investment in the bank by Canadian investor SPGP Group/ Erwin Singh Braich.

The current promoters of Yes Bank — Madhu Kapur, Yes Capital (India) Pvt Ltd and Mags Finvest — hold only 8.33 per cent stake, according to the stock exchange data. Rana Kapoor has sold his entire stake in the bank after his exit as CEO. Besides, foreign portfolio investors (FPIs) hold 15.17 per cent stake, state-owned LIC has over 8 per cent and mutual funds own 5.09 per cent.

Last month, Yes Bank said it received non-binding offers from foreign investors, including JC Flowers & Co, Tilden Capital, Oak HillAdvisors and Silver Point Capital. However, it wasn’t the first time the bank had announced names of potential investors. In November, the bank’s board disclosed several other names before rejecting most of the offers.

Mumbai-headquartered Yes Bank was incorporated in 2004. The bank’s asset size stood at Rs 3,71,160 crore at the end of June 2019. The bank has 1,120 branches and 1, 456 ATMs across the country.

Yes Bank delayed the announcement of third-quarter results in view of its slow progress in getting an investor or fund infusion. In November 2019, the bank reported a net loss of Rs 600 crore for the three months to September primarily owing to a one-time deferred-tax asset (DTA) adjustment of Rs 709 crore.

The bank had posted a net profit of Rs 965 crore in the same period last year. However, its gross NPAs increased to Rs 17,134 crore in the quarter ended September from Rs 3,866 crore in the year-ago period.

Net NPAs moved up to Rs 9,757 crore from Rs 2,019 crore in the same period. The percentage of net NPAs jumped from 0.84 per cent in Q2 FY19 to 4.35 per cent in Q2 FY20.

The bank made provisions of Rs 1,336 crore for the quarter. The bank’s total outstanding advances were at Rs 2.24 lakh crore in the quarter under review, down 6.3 per cent year-on-year. The bank also saw a decline in total deposits by six per cent to Rs 2.09 lakh crore.